Student at graduation wearing a cap and gown. Student Loans 101: Everything you need to know

Student Loans 101: Everything You Need to Know Now

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Student loans. If you don’t have them yet, perhaps in the coming months you’re planning to join the estimated 44.7 MILLION Americans with student loan debt. Eek!

Before you dive into that crowd, it’s important to understand what you’ll be getting into and what you can expect post-graduation.

Annual tuition costs at private schools range around $34,000/year, and in-state tuition hovers around $10,000/year. That means if your child or you attend a private institution for two years, you can expect to be about $68,000 in debt come graduation time. Attending for four years? Double that.

Unfortunately, young adults desperate to move out or start a career can make hasty decisions that fast track their way toward future financial trouble. So, instead of making life harder on your future-self, get informed now.

If you’re planning to finance a college education with student loans, here’s everything you need to know.

Student Loan Basics

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What are student loans?

A student loan is money borrowed from financial institutions for school related expenses — including tuition, room and board, textbooks, etc.

Though student loans can be helpful in paying for school, just like any other loan, student loans are not free money. Student loans generally accrue 4.45% to 7% interest — so, you’ll have to pay back the sum of money you borrowed, plus any accrued interest.

What types of student loans are there?


If you can, get federal loans — i.e. Great Lakes student loans. Generally they require students to take at least half a class load to qualify, but they’re the best loans available.

Federal loans are ideal because they:

  • are backed by the federal government
  • generally have lower interest rates
  • have fixed interest rates
  • tend to cost less long-term
  • you can wait to make payments until after you graduate, drop out of school, or begin taking less than half a class load (dependent on loan terms)
  • are likely to provide a grace period (~6 months without required payment) after graduation or a change in enrollment status
Female using a laptop while drinking some tea. Student loans don't have to be a burden.
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Federal loans have two main programs:

The Direct Loan Program allows you to choose between four types of direct loans.

  1. Direct Subsidized Loans: These loans are available to undergraduate students with proven financial need. If you or your child remain in school at least half-time the government will legit pay your interest for you while you’re in school, for the six months after you leave school and during deferment periods (the postponing loan payments)
  2. Direct Unsubsidized Loans: These loans are available to undergraduates, graduates and professional students with or without financial need. Unlike Direct Subsidized Loans, these loans require you to pay all of the interest.
  3. Direct PLUS Loans: These loans are for graduates and professional students, or eligible parents of undergraduates.
  4. Direct Consolidation Loans: These loans allow you to combine all eligible federal student loans into one.

The Perkins Loan is a loan universities provide, not the federal government. These loans are:

  • not available at every school
  • low-interest at 5%
  • available to undergraduate, graduate, and professional students with great financial need


While private student loans are an option, only go this route on an as-needed basis — avoid them if you can. Apply for federal loans, scholarships, and grants first before applying for private loans.

Keep in mind that with private student loans:

  • there tend to be higher interest rates
  • you may only be offered variable interest rates (meaning interest rates can increase/fluctuate)
  • a cosigner may be required — students with little to not credit history tend to require a cosigner (i.e. a parent or guardian)
  • there are sometimes additional fees (for instance, some private loan companies may penalize you for paying off your loan early… #Crazy)
  • lenders can have no mercy – if you experience financial trouble and can’t pay your student loan payments, they may not provide any assistance (e.g. deferment)
  • the interest isn’t always tax deductible (depending on your lender)
  • consolidations aren’t allowed

How to Apply for Student Loans

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To see if you qualify for student loans apply using the Free Application for Federal Student Aid (FAFSA) form.

The beauty with FAFSA is that it’s FREE to apply, and based on your information it will automatically determine what kind of financial aid you’re eligible to receive.

Types of financial aid include:

  • grants and scholarships (free money you don’t have to pay back #Ballin’)
  • work-study (when students are allowed to work for the school to cover a portion of their tuition)
  • student loans #Merp

It’s important to know that with FAFSA, the sooner you apply, the better it can be for you. Schools have limited funds to give, so it’s on a first come, first serve basis.

The FAFSA application process starts October 1st of every year and you want to apply the year before you expect to attend college.


When applying for private loans, do the following:

  1. Thoroughly research all your private student loan options
  2. Find a valid cosigner (if needed)
  3. Gather the paperwork/info the lender requires you to submit
  4. Apply at the right time to ensure you have the money you need when your tuition is due
  5. Submit your application

Ways to Repay Student Loans

College graduate in red cap and gown dancing because they paid their student loans off the right way, and saved money on interest!
Photo by Honey Yanibel Minaya Cruz via Unsplash


Having far more flexible repayment plans, federal loans offer three main ways to repay:

  1. Standard payment plans have a fixed monthly payment, and allow up to 10 years for individual loans to be repaid, and up to 30 years for consolidated loans
  2. Graduated payment plans increase payments gradually over time, and allow up to 10 years for individual loans to be repaid, and up to 30 years for consolidated loans
  3. Extended repayment plans allow your payments to be fixed or graduated, and allow up to 25 years for repayment.

Over the long-term it’s better to go with one of the three repayment options above rather than utilizing pay-as-you-earn repayment plans (i.e. REPAYE and PAYE plans). That’s because they tend to cost more in the end, which is a no go.

Ultimately, repayment plan guidelines vary, so review your plan to know what’s required of you.

LEARN MORE about repayment plans here.


Some private lenders allow you to begin repaying your student loans while you’re in school (highly recommend).

  • When you’re low on cash reach out to your loan provider to see if you can pay a lower fixed monthly payment
  • If you have the money, pay the full monthly payment (highly recommended)
  • Interested in lowering your debt after graduation? Look into making payments only toward the interest

Private loan lenders might:

  • offer as much as 25 years to repay your loan
  • allow you to pick your repayment term
  • provide the option to defer payment
  • provide interest rate reductions when you turn on auto-pay

Student Loan Debt Consolidation

While consolidating your loans can make repayment easier, it isn’t always the best option. Debt consolidation can:

  • lengthen your loan term (meaning you’re paying for a longer period of time – yuck) which can ultimately increase the total interest you pay
  • cause you to lose key benefits that help lower the overall costs of your loans (i.e. interest rate discounts, principal rebates, etc.)

Final Thoughts

Female college graduate with cap on, popping bottle of champagne. Take student loans seriously, so you can truly celebrate come graduation.
Photo by Jonathan Daniels via Unsplash

Ultimately, taking on student loan debt is a huge decision. You could end up paying for your student loan for nearly thirty years, so I urge you to not take this decision lightly.

Know the type of loan you’re accepting, the terms you’re agreeing to and what you can expect post-graduation.

As necessary as student loans might seem, it is possible to get through college debt free. Learn 18 creative ways to graduate college without student loans!

Happy Learning!

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